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Inside the Market’s roundup of some of today’s key analyst actions

The pullback in share price for Kinaxis Inc. (KXS-T) following the release of its third-quarter results during a period of weakness in the tech sector is “now at the point of being overdone,” said Industrial Alliance Securities analyst Blair Abernethy.

Accordingly, he upgraded his rating for the Ottawa-based supply chain software provider to "buy" from "hold."

"While near-term market volatility is likely to continue, we think current levels represent an attractive entry point for Kinaxis investors with a one- to two-year time horizon," said Mr. Abernethy.

Touting the potential for Kinaxis' “market proven” RapidResponse SaaS platform, Mr. Abernethy thinks the company has a “significant technology lead” over its competitors, and, despite a decline in deals in third quarter, he expects it to "grow more rapid organically over the next two years both within its installed base and its newer vertical markets.

"We continue to believe that are on the order of 1,000-1,500 potential customers that could be targeted globally, thus providing a TAM for Kinaxis measuring at least in the $2.0-4.5-billion range, given the current product offering," he said. "The SaaS revenue model consist of over 75 per cent of revenue from annual subscriptions, and customers that make long-term commitments to the product. With its backlog ($198-million) and revenue visibility, we believe that Kinaxis can continue to operate at healthy product margins and reinvest for future organic growth."

Mr. Abernethy maintained a target price of $88 for Kinaxis shares. The average target on the Street is $96.96, according to Bloomberg data.


Desjardins Securities analyst Keith Howlett expects a “more hospitable” environment for Metro Inc. (MRU-T) in fiscal 2019 as major headwinds, including changes to Ontario’s minimum wage, drug reform in Quebec and escalating freight costs, are “cycled” by the second quarter.

"Metro has a full agenda for FY19, including the integration of PJC [Jean Coutu Group Inc.], commencement of construction of two automated distribution centres (frozen and fresh products) in Ontario, expansion of pick-in-store, deliver to home, e-commerce into the Greater Toronto Area and continued investment in the retail store network," he said.

On Wednesday, Metro reported third-quarter earnings per share of 63 cents, meeting the expectation of the Street and a penny below Mr. Howlett's estimate. Same-store grocery sales rose 2.1 per cent due to increased traffic and higher transaction sizes.

"It was the first full quarter containing the results of Jean Coutu Group," he said. "Same-store drugstore sales increased by 1.8 per cent, comprising 0.7 per cent in pharmacy and 3.9 per cent in the front end. Synergies realized in the 20 weeks of ownership were $6.6-million, with an annualized run rate of $17-million. The target for cost synergies over three years is $75-million; this does not include revenue synergies related to cross-merchandising, e-commerce or expanding Pro Doc distribution."

With the results, Mr. Howlett maintained an adjusted EPS estimate of $2.95 for 2019 and introduced a 2020 projection of $3.19.

He kept a "buy" rating and $50 target for Metro shares. The average on the Street is $46.95.

Elsewhere, Raymond James analyst Kenric Tyghe increased his target by a loonie to $47 with an "outperform" rating (unchanged).

Mr. Tyghe said: "We continue to believe that Metro is well positioned to capitalize on the accelerating Food CPI backdrop while also effectively executing on key cost containment and e-commerce initiatives."


Believing it is “potentially pioneering a new class of immunotherapies which are capable of reprogramming immune cells, in vivo,” Raymond James analyst David Novak initiated coverage of IMV Inc. (IMV-Q, IMV-T) with an “outperform” rating.

“We view IMV’s data generated to date around DPX-Survivac as highly encouraging, potentially supporting a number of fast to market strategies, broad oncology applicability and a strong, early line position in the therapeutic regimen,” said Mr. Novak in a research note on the Dartmouth, N.S.-based clinical-stage immuno-oncology company.

"IMV’s foundational technology, DepoVax, enables a novel approach to deliver active ingredients to the immune system. DepoVax, which is a liposome-in-oil delivery technology, relies on a 'norelease' mechanism of action, forcing an active uptake by antigen presenting cells. IMV is utilizing this unique mechanism of action to generate a new type of artificial T cell flow in the blood which can be triggered to kill cancer. IMV’s lead clinical candidate, DPX-Survivac, encapsulates Survivin based peptides, licensed from Merck. Survivin, a protein member of the inhibitor of apoptosis protein family, has an important role in regulation of T cell responses in anti-tumor immunity and is ubiquitously expressed in a number of oncology indications. DPX-Survivac is currently being evaluated in four broad clinical trials, both as mono- and combination therapy, in recurrent ovarian cancer, DLBCL, and a basket cohort of Survivin expressing tumors."

Expecting multiple clinical catalysts that could drive the company’s shares higher in 2019, Mr. Novak set a target price of US$10 per share. The average is US$9.03.

"While it is early days for IMV, anti-tumor efficacy in ovarian cancer specifically has been encouraging. Furthermore, DPX’s ability to drive tumor infiltrating lymphocytes, in our view, has broad applicability across multiple tumor types," he said. "Looking forward, we anticipate multiple value creating events through future data readouts from DPX-Survivac in both ovarian cancer and DLBCL."


Though he anticipates a "strong" quarter from Canadian banks to end the 2018 fiscal year, Canaccord Genuity analyst Scott Chan lowered his target prices for stocks in the sector.

"We expect the Canadian banks to close out the year strong with 10-per-cent/11-per-cent EPS growth for Q4/F18 and F2018, respectively," he said in a research note previewing earnings season. "However, we believe the outlook will be more important than actual Q4/F18 results. Similar to last quarter, we can envision quarterly EPS surprises, but annual revisions will likely stay muted. We are introducing fiscal 2020 estimates with Big-6 group EPS growth of 5 per cent vs. 6 per cent in F2019 (vs. 7-per-cent average over past 12 years), and 11 per cent to close out F2018.

"To reflect decelerating EPS growth over the next few years, we are lowering our Group bank P/E multiple to 11.0 times (from 12.0 times), slightly offset by rolling forward our valuations one quarter to fiscal 2019. The revised 11.0 times Group bank P/E multiple is in line with its historical average of 10.9 times. As a result, we have lowered our target prices on Canadian banks by 7 per cent (average), but still expect strong total returns (14-per-cent average) over the next year."

Mr. Chan’s changes are:

Bank of Montreal (BMO-T, “buy”) to $111 from $118. Average: $113.72.

Bank of Nova Scotia (BNS-T, “hold”) to $77 from $82.50. Average: $83.62.

Canadian Imperial Bank of Commerce (CM-T, “buy”) to $124 from $133. Average: $131.34.

Canadian Western Bank (CWB-T, “buy”) to $36 from $38. Average: $37.36.

Laurentian Bank of Canada (LB-T, “hold”) to $40 from $44. Average: $47.11.

National Bank of Canada (NA-T, “hold”) to $64 from $69. Average: $67.33.

Royal Bank of Canada (RY-T, “hold”) to $102 from $111. Average: $110.40.

Toronto-Dominion Bank (TD-T, “buy”) to $83 from $89. Average: $84.86.

Mr. Chan said: “We reiterate our top picks for Canadian banks in order are: (1) TD (largest U.S. exposure, best dividend growth prospects, low relative capital markets exposure, strongest capital position); (2) BMO (U.S. earnings ramp, attractive Wealth business, highest commercial loan exposure, lowest Canadian housing, positive operating leverage, strong capital position); and (3) CM (strong momentum in Canadian P&C and in U.S. division, highest quarterly EPS surprises provides support, cheapest on valuation, largest dividend yield).”


Canadian oilfield equities are currently moving through a “period of peak investor bearishness,” according to Canaccord Genuity analyst John Bereznicki.

“We nonetheless believe it is difficult to predict when structural challenges facing the domestic oilfield sector will abate and see further downside risk to consensus estimates over the coming quarters,” said the analyst in a research report wrapping up the third-quarter earnings season.

“We thus remain biased to companies with production exposure that can continue to grow in the current environment.”

Mr. Bereznicki thinks domestic producers will be faced by “budget fatigue” in the coming weeks, leading to reduced year-over-year WCSB oilfield activity ahead of the holiday season.

“Recent commentary by Ensign suggests domestic contract drillers are also facing pricing headwinds already being experienced by the pressure pumpers,” he said. “We expect pricing softness and a lack of operator urgency to persist through Q1/19 and believe the break-up will be gated by budgetary constraints rather than weather.

“Amidst investor capitulation, many oilfield equities are near (or even below) their 2016 lows. If prospective OPEC+ production cuts can help global oil prices find footing and WCSB (and Permian) egress issues ease in 2019, we believe many of the companies in our coverage universe could enjoy an improvement in earnings prospects sometime in 2H19.”

However, Mr. Bereznicki reduced his target price for several stocks in his coverage universe.

“With the Q3/18 earnings season behind us, we are lowering most of our estimates primarily to reflect more cautious domestic E&P spending in 1H19,” he said. “We are also reducing most of our target multiples and taking our target prices down by an average of 15 per cent. There are no changes to any of our recommendations.”

His changes were:

CES Energy Solutions Corp. (CEU-T, “buy”) to $4.75 from $5.50. Average: $6.21.

Calfrac Well Services Ltd. (CFW-T, “hold”) to $4 from $4.75. Average: $6.90.

Entrec Corp. (ENT-T, “hold”) to 20 cents from 25 cents. Average: 20 cents.

Ensign Energy Services Inc. (ESI-T, “hold”) to $5.75 from $6.25. Average: $6.96.

Essential Energy Services Ltd. (ESN-T, “hold”) to 50 cents from 60 cents. Average: 84 cents.

Mullen Group Ltd. (MTL-T, “hold”) to $14.50 from $17. Average: $16.67.

Precision Drilling Corp. (PD-T, “buy”) to $4.50 from $4.75. Average: $5.90.

Source Energy Services Ltd. (SHLE-T, “buy”) to $3 from $4. Average: $4.20.

Trican Well Service Ltd. (TCW-T, “hold”) to $1.50 from $2.50. Average: $2.67.

Total Energy Services Ltd. (TOT-T, “buy”) to $14 from $15.50. Average: $15.60.

Western Energy Services Corp. (WRG-T, “hold”) to 55 cents from 90 cents. Average: 90 cents.

He raised his target for Tervita Corp. (TEV-T) to $13.50 from $12.50, keeping a “buy” rating.


Though he expects wider-than-normal differentials for Canadian crude will be “resolved in due course,” CIBC World Markets analyst Jamie Kubik thinks the short-term impact “could leave its mark on its sector.”

“Given the severe volatility in commodity pricing that has ensued globally and within Western Canada, the variance between our strip estimates and base price deck assumptions has widened well beyond normal," he said. "This has rendered many of our near-term cash flow estimates too stale to be meaningful for investors. As such we are amending our price forecasts for a mid-quarter update to bridge the widening disconnect.”

“Although we are not fans of downgrading targets or stocks at what appear to be market troughs, given our revised outlook on the commodity market over the near term, along with a persistent weakening in the forward strip, we feel there is little option but to do so at this juncture. We are taking care not to overshoot our estimates or expectations to the downside based purely on the near-term price action given the upcoming OPEC meeting may spur additional support for crude pricing. That said, we feel it is prudent to provide more conservative assumptions given the magnitude of the movement in prices which has ensued in order to better reflect the forward strip, along with our price expectations.”

Mr. Kubik downgraded Cardinal Energy Ltd. (CJ-T) to “neutral” from “outperform” with a target of $4.50, falling from $6.25. The average is $6.05.

“We see the stock as being be more range-bound than some of its peers over the near term,” said Mr. Kubik. “Although we view the company’s low decline rate as a competitive advantage that will see production levels more easily maintained in this environment, we estimate that 50 per cent of Cardinal’s crude production is medium/heavy in nature, which is expected to face above-average price pressure in the near term. Cardinal also has a higher-than-average cost structure, driving added margin and cash flow pressure, which we see resulting in the stock lagging some of its peers.”

Editor’s note: An earlier version of this article incorrectly identified Raymond James analyst David Novak. It has been updated

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